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German Stocks Climb as Deutsche Telekom Shares Advance

Oct. 4 (Bloomberg) -- German stocks rose, following a two-day decline, as investors looked for signs of progress in the political impasse over the U.S. federal budget and debt limit.

Deutsche Telekom AG advanced 3.7 percent after UBS AG upgraded Europe’s second-biggest telephone company. Lanxess AG retreated 0.7 percent as a gauge of chemical makers slipped.

The DAX Index added 0.3 percent to 8,622.97 at the close of trading in Frankfurt after earlier declining as much as 0.3 percent. The equity benchmark has still slipped 0.4 percent this week. It rose 6.1 percent in September as the Federal Reserve unexpectedly refrained from reducing its monthly bond purchases. The broader HDAX Index also increased 0.3 today.

“If the U.S. Congress does not raise the debt limit and the U.S. defaults on its obligations, that would be catastrophic for financial markets and the economy, potentially resulting in more damage than the financial crisis in 2008,” Daniel Kukalj, an equity analyst at Close Brothers Seydler Research AG in Frankfurt, wrote in a note. “This game of cat and mouse may end not only with a disaster for the U.S. economy; it would also have a big impact on the global economy.”

In the U.S., the partial government shutdown entered its fourth day today, with as many as 800,000 federal employees temporarily out of work, as lawmakers wrangled over the budget for the new financial year, which started on Oct. 1. The Labor Department has postponed the publication of its monthly jobs report, which was due today.

Borrowing Limit

Congress also faces a dispute over raising the $16.7 trillion debt ceiling this month. The Treasury has said that it will exhaust measures to avoid exceeding the borrowing limit on Oct. 17. If that happens, the government would run out of cash to pay all of its bills at some point between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

The Treasury Department said late yesterday that a federal default could lead to a recession comparable to the 2008 financial crisis. Separately, International Monetary Fund Managing Director Christine Lagarde said in a speech in Washington that “it is mission critical that this be resolved as soon as possible.”

Deutsche Telekom added 3.7 percent to 11.19 euros after UBS upgraded the shares to buy from neutral. The brokerage predicted that revenue from the phone company’s German business will stabilize in 2015 and then grow at 1 percent a year from 2016. Deutsche Telekom’s fiber network should enable it to maintain its high share of the broadband market, according to analysts led by Polo Tang.

Lufthansa Gains

Deutsche Lufthansa AG climbed 2.1 percent to 14.41 euros, halting a two-day slide, after the airline said the operating loss at its Germanwings discount airline will shrink by 90 million euros ($122 million) this year.

RWE AG rose 2.2 percent to 25.59 euros. Investec Plc reiterated its buy rating on Germany’s second-largest utility, saying that the company can benefit from changing regulations and a corporate restructuring. The brokerage upgraded European utilities as a group to neutral, the same as a hold rating.

Lanxess, which makes synthetic rubber, decreased 0.7 percent to 47.05 euros.

The volume of shares changing hands in DAX-listed companies was 9 percent lower than the average of the last 30 days, according to data compiled by Bloomberg.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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